Banks will reduce interest rates in the next few days as the 50 days of demonetisation of 500 and 1000 rupees notes sought by Prime Minister Narendra Modi come to an end.

According to banking officials, The reduction in lending rates could be accompanied by a steeper cut in deposit rates. The government has sought to persuade banks to lower rates on the grounds that the cost of deposits had dropped due to demonetisation and the benefits should be passed on to customers to boost consumption. Investment sentiments are low and the government is under tremendous pressure from the Opposition to showcase that the demonetisation exercise has paid off. Secondly, the common man is hoping that after going through agony for 50 days, he should get the benefits of demonetization. Therefore, the government is in dialogue with banks on measures that can be taken to boost investments.

Modi announced that Rs 500 and Rs 1,000 notes would cease to be legal tender on November 8, in effect cancelling about 86% of the currency in circulation as part of his government`s campaign against black money. He had said the situation would return to normal in 50 days.

A large bank’s chief said, our sense is that a few large banks will announce a steeper cut this weekend due to huge flow of deposits and poor credit demand.